A car buyer has two financing alternatives to lease or to purchase It is important to evaluate all the options and analyze the consequences of lease versus purchase decision The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice How should a lease versus purchase analysis be conducted How can this worksheet be applied to help you or someone else make their financing decision Consider the following scenario Should Eli Lease or Purchase Eli is considering the purchase of a Toyota Prius and has negotiated a final price of $19,895 Hes trying to decide whether to lease or purchase the vehicle If he leases, hell have to pay a $550 security deposit, a capital cost reduction (down payment) equal to 10 of the vehicles cost, and monthly payments of $352 over the three year term of the closed end lease The Prius will have a residual value of $7,958 On the other hand, if he buys the Prius, hell have to make a 10 down payment, pay sales tax equal to 8 of the vehicles price, and make monthly payments of $529 on a three year loan that charges 4 interest Be aware that funds used as down payments and security deposits incur an opportunity cost of 4 , as they could have earned interest for Eli over the period of the lease or loan Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli To complete the worksheet, enter the appropriate values in their corresponding blanks (Note Round each value to the nearest whole dollar ) Ch 05 Assignment Making Automobile and Housing Decisions Based on this analysis, Eli should Use the lease to purchase the Prius, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Prius, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the Prius, because its total cost is greater than the total cost a a purchase transaction

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 25, 2024

A car buyer has two financing alternatives: to lease or to purchase. It is important to evaluate all the options and analyze the consequences of

A car buyer has two financing alternatives: to lease or to purchase. It is important to evaluate all the options and analyze the consequences of lease versus purchase decision. The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice.

How should a lease-versus-purchase analysis be conducted? How can this worksheet be applied to help you or someone else make their financing decision? Consider the following scenario:

Should Eli Lease or Purchase?

Eli is considering the purchase of a Toyota Prius and has negotiated a final price of $19,895. Hes trying to decide whether to lease or purchase the vehicle.

	If he leases, hell have to pay a $550 security deposit, a capital cost reduction (down payment) equal to 10% of the vehicles cost, and monthly payments of $352 over the three-year term of the closed-end lease. The Prius will have a residual value of $7,958.
	On the other hand, if he buys the Prius, hell have to make a 10% down payment, pay sales tax equal to 8% of the vehicles price, and make monthly payments of $529 on a three-year loan that charges 4% interest.
	Be aware that funds used as down payments and security deposits incur an opportunity cost of 4%, as they could have earned interest for Eli over the period of the lease or loan.

Use the automobile lease-versus-purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest whole dollar.)

image text in transcribed

Ch 05: Assignment - Making Automobile and Housing Decisions Based on this analysis, Eli should: Use the lease to purchase the Prius, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Prius, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the Prius, because its total cost is greater than the total cost a a purchase transaction